He reiterates numerous well-regarded economic studies that show that firms which restrain the growth of healthcare premiums will pass the additional money to their workers in the form of higher wages. Moreover, the paper cites statements by union leaders where they explicitly say that they bargained for stronger healthcare coverage and lower wages - and one statement where teachers in Madison, Wisconsin were considering which side to take in the tradeoff between wages and health insurance. Again, I do worry somewhat about non-unionized firms with low-wage workers, but the public and Congress could monitor the situation.

Furthermore, he says that allowing unions a transition period is justifiable. Many unions whose plans would otherwise be subject to the tax are locked in collectively-bargained agreements for several years. They will be able to address the issue at their next round of negotiation, but will not be forced to do so before.

He further assesses the distributional effects of the legislation:

Critics of the excise tax also argue that it would be less progressive than some other possible sources of revenue, such as the high-income surcharge included in the House-passed bill.[12] This observation is correct, but it has been overstated.

MIT’s Gruber estimates that the excise tax will raise workers’ wages substantially over the next decade, and the bulk of these additional wages will accrue to middle-income households.[13] Under the Senate-passed version, for example, workers earning less than $100,000 would receive two-thirds of the wage increases, but they would pay only 49 percent of the tax. In contrast, workers earning more than $200,000 would receive 10 percent of the wage gains and pay 16 percent of the tax.[14]More important, by limiting the existing tax bias in favor of employer-sponsored health insurance, the excise tax would curtail an inequity in the existing tax system. At present, a worker with a health insurance plan that costs $26,000 — for whatever reason — gets twice the tax break that goes to an otherwise similar worker whose insurance costs only $13,000. A worker without employer-sponsored insurance receives no tax benefit at all. The excise tax would reduce, but not eliminate, this disparity.

The excise tax also needs to be viewed in the context of the entire health reform legislation. The House and Senate bills are full of provisions that would create a fairer distribution of health insurance costs, not the least of which is the limit on age-based variation in premiums. Any final legislation that is comprehensive would likely include other tax provisions that fall primarily on very-high income people, such as the Senate’s increase in the Medicare payroll tax on high-wage earners. Any such legislation likely would also provide new health insurance subsidies that would make coverage more adequate and affordable for low- and moderate-income people who purchase insurance through the new health insurance exchanges. Thus, health reform as a whole would improve the progressivity of the federal tax and transfer system.

Last, Van de Water notes that the change would approximately halve the revenue collected in the first ten years, but in subsequent years, the tax would collect a good portion of the revenue originally planned for. Policymakers would obviously have to offset that amount, but basically, the tax is not being weakened significantly in the long run.